John Rutherford, now 71, from Essex, and Samuel Bentley, 74, from Islington, were dismissed from their jobs in the clothing industry.

They took their case to an employment tribunal, which ruled they had been unfairly dismissed and should be allowed to seek compensation.

'Unfair' treatment

Mr Rutherford and Mr Bentley's case was brought on the basis of sex discrimination.

It argued that the upper age limit on claims, which is currently 65 for men, had a disparate impact on men because they were more likely to work beyond 65 than women.

While UK law currently gives over-65s few employment rights, Britain is due by 2006 to bring in EU legislation outlawing age discrimination.

No precedent

A spokesman for the UK's Department of Trade and Industry, which is appealing the ruling, said: "We believe that the decision which relates to sex not age discrimination should be overturned on appeal.

"We recognise that some employers will be concerned about the implications of this case, but employment tribunal decisions do not set legal precedent."

It added that it believed there was no need for employers to adjust their policies "in this instance".

The Employment Appeals Tribunal confirmed that an appeal had been lodged, and said the case would be listed for hearing in due course.